Aluminum smelter restarts to offset Middle East shortfalls, but gas prices pose risks

The aluminum market is assessing whether restarting idled smelters and building new capacity would be enough to offset supply shortfalls from the Middle East amid challenging fuel prices and the region's share exceeding 20% in certain markets.

"The Middle East accounts for 9% of global primary aluminum production, but in the ex-China market, the Gulf Cooperation Council's share is huge," Anoop M. Fernandes, vice president for research at SICO Bank, told Platts, part of S&P Global Energy.

In 2025, the world produced 73.8 million metric tons of primary aluminum, of which non-Chinese supply accounted for 29.6 million mt, with just over 23% of that provided by the Middle East, according to the International Aluminium Institute.

"Europe and the US are important destinations for [aluminum] metal from the UAE and Bahrain, with their exports to the US having helped to partially mitigate the shortfall in shipments from Canada in the wake of the 50% import tariff," said Karen Norton, principal analyst at S&P Global Energy CERA.

US President Donald Trump doubled tariffs on aluminum and steel imports to 50% in June 2025.

"We struggle to see where the US would find alternative units as Canada continues to eye Europe as a destination for shipments beyond the current quarter," Norton said.

If Middle Eastern supply remains constrained, it will accelerate new smelter projects, especially in Indonesia, according to Fernandes.

ING Bank in December 2025 said it expected Indonesia's new aluminum capacity to total 1.4 million mt in 2026, with 500,000 mt added in 2025 to help ramp up production.

"We continue to hold the view that the [580,000 mt/year] Mozal smelter [in Mozambique], which is slated to close this month, could yet get a reprieve," Norton said of other upsides.

EU reactivating capacity

Norton said Century Aluminum's 320,000 mt/year Nordural smelter in Iceland was returning to full capacity six months earlier than previous guidance, and that Slovakia's government recently signed a memorandum to restart the 200,000 mt/year Slovalco smelter. But "of course, high energy costs need to be considered," Norton said.

Greek company Metlen, with 190,000 mt/year primary aluminum capacity, said March 5 in an email to Platts that it was well-positioned to support Europe's aluminum self-sufficiency in both production and supply.

Unlike Metlen, though, and Norwegian industrial group Hydro, most European producers do not have both energy and aluminum in their portfolios and are therefore more susceptible to the effects of the Middle East conflict on fuel prices.

Platts assessed the Dutch TTF month-ahead gas price Eur50.545/MWh on March 5, up 4.26% day over day. The index jumped 60% since the pre-war Feb. 27 level.

"It will take some time for us to see the impact [of electricity price spikes], but it will affect us in the coming weeks," a European billet producer told Platts.

Demand to take hit at $4,000/mt

Although aluminum supply growth is expected in regions like the EU in the near term, which should ease reliance on just-in-time deliveries, the demand side of the market will feel the inflationary pinch too, according to Fernandes.

On March 4, Citi lifted its LME aluminum price projections to $3,600/mt, from $3,400/mt previously, with a $4,000/mt bull case if a supply disruption from the Middle East deepens. The bank's analysts said that shipping and insurance dynamics were extending the impact window, and container-shipped primary metal and value-added products were likely to normalize more slowly than tanker-based flows, even if partial transit resumes.

"If the LME price hits $4,000/mt you see a $7,000/mt all-in price for an aluminum ingot in the US, including the impact of the country's 50% tariff and the $2,500-$2,600/mt premium it commands? Will customers want to take that inventory?" said Fernandes.

The LME three-month contract came off to $3,296/mt March 5, from the prior day's $3,342/mt, its highest level in almost four years. The benchmark is now 5% higher than it was on Feb. 27.